New York Senator Chuck Schumer says that Congress should send a one-time emergency payment of $581 to all Social Security recipients to make up for the tiny cost of living adjustment (COLA) scheduled for 2017 and the fact that there was no COLA in 2016.
Small Social Security Increase for 2017
The Social Security Administration recently announced that people who receive Social Security will only see a 0.3% increase in their benefits in 2017. This follows a 0% COLA in 2016. For most people the 0.3% increase will result in only about an extra $5 per month.
The purpose of the annual COLA is to help seniors keep up with rising costs. The average increase over the past two decades has been 2.4%; however, with lower oil prices and inflation, recent years’ COLAs have been much smaller.
Two-thirds of seniors rely on Social Security for over half of their income. A 0.3% COLA when the cost of food, housing and medicine is rising at a faster rate results in a benefit decrease for Americans who rely on Social Security for their main income.
The $581 one-time payment would pay for the equivalent of three months of groceries or one year of out of pocket prescription drugs for the average senior.
The SAVE Benefits Act
The Seniors and Veterans Emergency Benefits Act (SAVE Benefits Act) was introduced by Senator Elizabeth Warren last year when the Social Security Administration announced that there would be no COLA for 2016. The bill didn’t pass last year, but has been resurrected after the recent 2017 COLA was announced. The bill is being co-sponsored by Sen. Charles E. Schumer, Sen. Bernie Sanders and 15 other senators.
Congress passed a similar one-time payment in 2009, giving Social Security recipients a $250 payment to help during the recession. This was after it was announced that there would be no COLA for 2010 (there was no COLA for 2011 either, but the one-time payment only passed for 2010).
Changing How the COLA is Calculated
While the one-time payment would help, Congress would do better by changing how the COLA is calculated. The annual increase for Social Security benefits is based on the Consumer Price Index for Urban Wage Earners (CPI-W), which is based largely on transportation costs. Since oil and gas prices have been so low, this results is a low CPI and thus a lower COLA.
Unfortunately, the CPI-W isn’t an accurate reflection of the average senior’s budget. Most seniors have very low transportation costs as they don’t have to commute to a job any longer. However, these lower transportation costs are offset by higher food, housing and medical costs. A better representation of senior’s spending is the Consumer Price Index for the Elderly (CPI-E), which reduces the emphasis on transportation costs and gives greater weight to housing, food and health care.
Medicare Part B Expected to Go Up in 2017
While the Medicare premiums for 2017 haven’t been announced yet, they are expected to go up in 2017. As a result, many Social Security recipients will not receive an increase in their Social Security benefits as the annual COLA will be offset by higher Medicare premiums.
The only good news is that people who are already receiving Social Security can’t have their benefits reduced by rising Medicare premiums. This is known as the “hold-harmless” rule.
Social Security Wage Base Increases by 7.3% for 2017
In other Social Security news, the maximum taxable earnings for Social Security was increased from $118,500 (the 2015 and 2016 income limits) to $127,200 for 2017. At 7.3%, this is one of the largest increases in the Social Security wage base. This should result in a significant increase in Social Security taxes collected which will help reduce the deficit over the next few years.
This could be just the beginning for wage base increases. Polls show that 80% of Americans are in favor of increasing the amount of wages that people pay Social Security taxes on. Some proposals include raising the taxable maximum wages to $250,000, while others propose eliminating the cap completely.